Fintech has been at the centre stage of the rapid economic
transformation in India over the last six years. Companies have leveraged
innovative technologies to overcome geographic boundaries to connect
individuals with financial services. For a country like India that has been
heavily dependent on long, elaborate, and physically challenging processes,
fintechs have significantly simplified the lives of customers.
India is now the fastest-growing fintech market and the
third-largest fintech ecosystem in the world. Rapid penetration of the internet
and smartphones, an influential demographic of millennials, ‘India Stack’ and
strategic collaborations between fintech firms and banks have contributed to
this trend. The pandemic has been a turning point for greater adoption of
digital lending, insurance, micro-services, and more.
Going forward, consumers and businesses are expected to set
new goals and practices for spending, investing, and saving. With an increased
emphasis on efficient, cost-effective, and democratised solutions, these
fintech trends will change the ball game of financial services in India.
Buy now pay later
The pandemic has also accelerated the growth of the digital
payments industry. Of the many payment modes, BNPL is gathering a lot of steam.
Buy Now Pay Later (BNPL), where big-ticket purchases can be
broken down into smaller low-cost or no-cost EMIs, is popular among millennials
and Gen Z. This is a young, tech-savvy and non-carded population. They value
fast-paced and seamless experiences but are card-averse. India today has
approximately 100 million online shoppers of which approximately 25-30 million
have credit cards. This makes BNPL the most exciting product that can
revolutionise how online shopping is experienced.
Other factors that have facilitated the rise of BNPL are job
losses and salary cuts during the pandemic. BNPL increases the affordability of
essential purchases, while bringing aspirational buys within reach.
FinTech innovations have brought BNPL to many businesses,
which were thus far dependant on card and cash-based payments. This means they
can improve cash flows, sales, and business growth.
Several edtech firms, travel sites, and food delivery apps
have tied up with digital lending platforms to facilitate credit availability
What we are looking at is the creation of an entire digital
lending ecosystem, which will help bring formal credit access to people without
credit histories. In a country where lack of credit disallows people from
pursuing many aspirations, such platforms will be a boon.
However, it is important that as this product grows, lenders
be transparent with borrowers on rate of interest and charges. It is imperative
that this new generation of shoppers is able to build confidence in new and
innovative financial products.
Co-origination of loans
Co-origination of loans involves banks and NBFCs entering
into partnerships with fintechs to jointly finance loans and share credit
risks. The RBI has advocated this model as a solution to address the credit gap
in the priority sector.
Several financial institutions are currently engaged in
co-origination partnerships to finance the priority sector. Many institutions
have also adopted co-lending practices to finance small ticket consumer loans.
The RBI mandates mutual sharing of risks and rewards between co-lenders, with
one co-lender retaining a minimum share of 20 percent of the credit risk in
their books till maturity.
Leveraging this model, banks have collaborated with fintech
platforms to assess the creditworthiness of customers who have for long been
invisible to formal banking systems. These fintech platforms are using advanced
algorithms to access and analyse data from disparate sources to widen the
umbrella of borrower eligibility.
In the absence of credit history, these platforms are
relying on alternative data sources such as utility bill payments, rental and
cell phone bill payments, social media profiles, purchase histories, bank
account transaction histories, etc., for a holistic view of an individual’s
ability to repay loans.
In contrast to traditional systems, fintech products don’t
involve lengthy processes or collateral, enabling simplified access to credit
for salaried and self-employed individuals.
Fintechs, with continued liquidity support from banks, are
enabling broader reach, powerful analytical capabilities, easy procedures, and
consumer-friendly lending terms. Over the next few years, this finance model
will become the backbone of the banking sector.
Insuretech – tailored insurance products
The young generation is acutely aware of the importance of
insurance. Their changing lifestyles and diverse interests are driving the
demand for specialised products. While big players are investing in digital
channels and enabling hassle-free insurance applications online, fintech
companies are stepping up to create bespoke products for niche segments.
The partnership between big insurance companies and fintech
firms has the potential to enable the distribution of bite-sized insurance
products. New technologies like AI and machine learning are enabling predictive
underwriting, better customer services and claims management.
Personal finance management
Personal finance apps can help people track and analyse
their income and expenditure. These apps not only provide insights into where
and how people spend, but also categorise them, providing the user with
granular visibility into budget management.
Moreover, many platforms are offering bundled products.
Based on their data, users can access on-demand credit options with customised
Fintechs are keeping a pulse on consumer financial
behaviour. This is helping them offer tech-driven, intuitive money-management
solutions to digitally savvy end users, which is perpetuating a digital
revolution in the financial world.
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